Medicare Part D

Updated on November 12, 2008

The Medicare Part D drug plan is a federal government program designed by Medicare to help all citizens who are eligible for Medicare benefits pay for prescription drugs. It began in January 2005, and by most accounts has been beneficial for seniors. Prior to Part D, most seniors had to find prescription coverage through a confusing web of private insurance companies. Now there is a single source for prescription drug coverage. Although administered by private insurers, the plan offers a nice range of coverage for a reasonable cost.

The Medicare Part D plan works in a way that is similar to most health coverage. Simply stated, the senior pays a monthly premium to belong to a plan, and a small part of the drug cost at the pharmacy each month. Before a senior can utilize the services of a Part D plan, he or she must enroll. It is not an automatic or easy process. In the past there have been very limited services to help with this choice. Newer Web sites have simplified this process. One popular site is Drugs.com - Compare Medicare Part D Plans.

Enrolling in Part D Plans

The enrollment process involves two parts. First, the senior chooses a Part D plan. There are many to choose from depending on which drugs are being taken and the cost of the monthly premium. Secondly, an application needs to be filled out. Once completed, the senior receives an ID card, which they present to a pharmacy.

The plan choice then runs for the calendar year. The plan choice is quite varied and one of the most confusing parts of the process. Medicare, as part of the plan design, has allowed private insurance companies to bid out prescription insurance plans in order to promote competition. Their hope is by doing this they can keep costs low for seniors. For the most part this has worked. Several large insurance companies offer low cost plans. The confusing part for the seniors occurs when trying to figure out which of these plans works best for them.

It is further complicated by the fact that the plan choice can't be changed until November 15th of each calendar year. Medicare has attempted to help seniors with this choice through the Medicare.gov website, but it has proven to be complicated and difficult for most seniors to use. There are also several private insurance companies that have entered into the market as well. They have agents that are authorized to help seniors choose Part D plans.

Some larger national pharmacy chains have even partnered with insurance companies. The most noticeable of these are Walgreens with AARP and Wal-Mart with Humana.

A lot of focus has been placed on basing a plan choice on what plan covers a seniors' drugs. The drugs covered by Part D plans fall into cost categories called tier levels. Drugs that are more expensive usually fall into a higher tier. They are typically ranked from one to four, with four being the most expensive. Some plans use names rather than numbers, but generics are on lower tiers than brand name drugs, and really expensive drugs are higher tiers.

Drug Exclusions

Part D plans don't cover all the drugs available in the United States. There are a number of notable exceptions. The one that is most significant are the anti-anxiety drugs known as "benzodiazepines". Examples of these are Valium (diazepam) and Ativan. Drugs like Viagra and Cialis, and drugs used for cosmetic purposes are also not covered. Some plans also exclude drugs for coverage based on pricing or the lack of rebates from drug manufactures.

Plan Costs

Regardless of the tier, the particular drug usage, or coverage exclusions, the top plans choices for seniors are usually the ones that have the lowest monthly premiums and pharmacy costs. Because of the occurrence of yearly deductibles, even the lowest cost plan is not always the one that best meets the needs of the senior citizen. A senior making a plan choice needs to be aware of how the deductible phase of Part D plans works. This is because all the decision-making processes available initially rank the plans based on yearly cost.

Often the lowest price plan has the highest initial costs. These can be quite significant, with the standard deductible for a Part D plan is $275 dollars, but this can and does vary among plans. The problem occurs when the yearly costs of plans are very similar but the senior has to pay $275 the first months of the year to satisfy the deductible.

Depending on a senior's financial situation, this could cause a problem. If they couldn't afford the $275 deductible initially, then they wouldn't get any of the needed prescription drugs. Thankfully, there are also plans that avoid the deductible altogether. Although they usually represent a slightly higher yearly cost, they are much more manageable in terms of recurring monthly costs. It is these differences that can cause one of the more nasty surprises that a Part D plan can offer.

Choosing a Plan

The average senior is easily overwhelmed by not having some help in making a plan choice. Some estimates have put the decision time as high as 8 hours. To top it off, if the senior citizen doesn’t make a plan choice within 90 days after their 65th birthday, they may have to pay a lifetime monthly penalty. As of 2009 it is not all that significant at about $0.30 a month, but it will continue to increase each year for the client who is not enrolled. There are a couple of exceptions to the monthly penalty issue. It occurs when the senior has what Medicare calls “coverage that is as good or better” than the Part D plans.

This is also known as “creditable coverage”. This means if the senior has some private source of insurance such as a pension, union benefit or some other federal source of prescription coverage they avoid the penalty for not enrolling.

In most cases, a senior that has these benefits can be assured that if they lose those benefits no penalty will occur. If a senior is receiving benefit from one these types of plans, he or she must be sure to get evidence of the “as good as or better” coverage level. The penalty also doesn’t apply when a senior loses what is called “Special Assistance” from Medicare.

Special Assistance is a form of public aid that Medicare placed in the Part D program to help low income seniors pay for the Part D costs. This assistance ranges from paying all or part of the monthly plan premium and all or part of the monthly costs. If a senior thinks they might be eligible for this help they should contact Medicare directly at 1-800-MEDICARE. Individuals who qualify for the state Medicaid programs also get their Part D costs at substantially lower costs.

Individual insurance agents also can be of great help to seniors in making a plan choice. But, because agents selling these plans to seniors get paid by the plan provider they are selling sometimes a senior might get directed to a plan that works best for the agent and not the senior. Pharmacists and Medical Providers can also be a good choice for help, as they deal directly with Part D plans on a regular basis. As one can see, it is important to get advice from a non-biased source.

Plans historically have auto enrolled a senior for each next year. Because of this, they can increase premiums while decreasing the benefits that enrolled members receive. The senior should choose a new plan if the increasing costs of their current plan don’t best meet their needs.

If a senior decides to change plans, it is the new plan’s responsibility to cancel the old plan before billing the senior for the newer plan. This is a nice feature that decreases the tasks a senior must do to change.

Using Part D Plans

Once the senior has negotiated the confusing maze of enrollment options, the plans work in a simple way. The plan premium is either deducted from their Social Security check or paid directly to the plan by the senior. The senior presents the insurance card received from the plan to the pharmacist. Then, the senior pays the pharmacist the co-pay based on the tier level.

If a deductible exists, then senior pays the full cost of the drug until the deductible is satisfied. In some cases this is the better choice of plans. This exists because the insurance company negotiates a lower cost than the actual retail cost for the senior. If a senior uses drugs that are cheaper, then the combination of a low premium, a higher deductible, and negotiated low drug prices is usually the best bet. If no deductible exists, then the monthly plan costs start at the co-pay the insurance company sets for drug via the tier level discussed earlier.

Some plans do cover generics while the senior is in the gap, but these plans usually exceed $85 per month. The biggest insult of all is that gap usually occurs later in the year close to the holidays. The plans are suppose to inform seniors of their monthly costs, but with all the bills, Medicare notices and other junk mail seniors get, this information is usually lost.

Fortunately most drugs are not that expensive and that $2700 chunk of money is spent over the 12 months of the year. The issue is that unless a senior expects the donut hole, it usually creates financial hardship.

The best bet to avoid the donut hole is to modify or change the medication a senior is taking. By choosing drugs that are cheaper, such as generics, or a different drug, the donut hole can be avoided or pushed later into the year.

The only nice thing about the donut hole is that is does have an end. It stops once the senior has incured $4350 of total drug cost. Once this happens Part D introduces what is called catastrophic coverage. If you’re counting the “true out of pocket” drug costs at this point have reached in excess of $3400. By any measure, this is a huge amount of a senior’s budget. That begs the question as to what happens after the $4350 amount is reached. After that the plans will cover brand name drugs at $6.00 or 5% of the cost whichever is greater, and generics at 2.40 or 5% of the cost whichever is greater. Thankfully, there is no maximum amount of coverage limit.

As one can see, the Part D plan is full of complexity and confusion. To that end the United States Congress has made several attempts to simplify the process. None of these to of date have been passed. It is only by a high level of diligence and attention, that the average senior avoids unnecessary costs. Unfortunately, as with most things financial seniors can and do bear the brunt of the abuse of society. It is remarkable that a plan designed to help seniors has been designed to be so complex. But as with all things, education and experience usually help. Some really good help does exist to help seniors and their loved ones make a solid Part D decision. The web pages mentioned here have been reviewed for their senior friendliness and content. Some are easier to use then others. The best bet for seniors is to be informed about their Part D plan.